How to get settlements for default student loans starts before people contact their lenders. When people default on their student loans, they are at risk for wage garnishments, income tax refund offsets or not receiving Social Security benefits. Unfortunately, for people struggling to pay their student loan debt, bankruptcy is not an option. However, saving enough money to make a lump sum settlement payment is an option. Lump sum debt settlement payments are more an incentive than monthly payments to negotiate.
People may have to contact one of three organizations. For instance, people may have to negotiate with the U.S. Department of Education (DOE) which is over federal loans or lenders if they have private loans. People may have to negotiate with private collection agencies which work on the behalf of DOE.
People who have defaulted on their student loans have collection fees and interested attached to their student loan amounts. However, people shouldn’t take the amount lenders and collection agencies say they owe. There may be mistakes that actually increase the amount their student loan debt. So, people should check their records against lenders’ records. According to Bankrate, when mistakes are found lenders must make good on all the interest that stems from the mistake.
The DOE and lenders typically want the student loan money the lent people so they may be reluctant to negotiate settlements in lieu for the any money they would get in repayment or garnishments. So, it’s important to prove that all the collection fees and interest on student loan debt has made it impossible to repay debt even with wage garnishments and income tax refunds offsets. (See also requirements for hardship discharge of student loans).
According to FinAid, people should start by negotiations by offering to split the difference between current amount owed and the amount of their original default claim. However, make sure amount is enough to start negotiations. Often DOE will not settle for amounts less than the principal balance on federal loans or less than the current recovery rate. The recovery rate is the percentage of disbursement on defaulted loans that are recovered and any penalties and interest along with t payments toward the principal balance, according to FinAid.
People must make sure that all terms of the settlement agreement is in writing before making payments.